2000

Now let’s move to the year 2000. I know in your head you say, “big high in the market” and it was, but we’re so used to looking at the Nasdaq high we forget how many months the S&P spent up at the highs. The breaks in February, April and May were so short-lived they were meaningless. Why? The moving average line was still rising!

Now let’s turn to the break in September 2000. Two hundred trading days prior to that was December 1999 and what is the first thing you notice? The break down is right around the same price as what we’re dropping. Yellow flag.

Next, look at the rally back to the moving average line in October. In October we’re dropping January and January was clearly higher than October, thus the rolling over begins. Go back to the long-term chart, above, and see point B. See how every rally in that bear market failed at the declining moving average line?

2007

Another interesting time to review is 2007. Look at the August decline — 200 days prior was October (red arrow on the chart). The first thing we notice is that we were dropping numbers that were so much lower the moving average line didn’t even have time to care so we plunged and moved right back over it.

Look at the break in November 2007, which arrived one month after the S&P 500 made its high. On the long-term chart this is point C; 200 days prior to the November break was January. Here we were looking at dropping the same price the S&P was trading at. Yellow flag. The rally in December stopped pretty much in the area of the moving average line.

Now glance back to March 2007 and see that huge ramp up the moving average line would be dropping going forward; you say to yourself, failure to get back over that line is going to roll it back over, just because of the math.

2010

After the market finally bottomed and lifted in 2009, it did not fall back under the 200-day moving average until just after the Flash Crash of 2010. And what numbers were we dropping? August 2009, which was below where the S&P was trading. We attempted to cross back over the moving average twice and failed but in September, when it revisited the line, it would have been dropping late November/early December 2009 (blue arrow), which was similar in price, thus the chance of saving itself from rolling over was high. This is point D on the long-term chart.

 Related: Here’s Why the Stock Market’s About to Get a Big Boost.